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THE AUDITOR'S RESPONSIBILITY FOR OBSOLESCENCE Lyman W. Oehring, Jr. Detroit ONE OF THE most perplexing financial problems confronting the business world today is the continual increase in the level of inventories. It can be observed in the financial statements of clients, in published reports generally, and almost daily in newspaper articles. Congress has made the inventory prob-lem in the automotive industry the subject of an investigation. A portion of the dollar increase in inventories can be attributed to the increased costs of production resulting from the continuous increases in wages and fringe benefits. Competi-tion and consumers' desires, however, have been the major factors increasing the inventory level. The public has become increasingly style con-scious and has demanded more models, styles, and colors of almost everything it buys. Com-petition has forced sellers to have their products in these different combinations available because a consumer ready to buy does not want to wait. As advisers to business, accountants as professional people and we as a firm have been continually working with business to deter-mine and maintain the most efficient inventory levels. However, it is not the purpose of this article to pursue the accountant's efforts in this area. Rather it is to look at the problems that confront the auditor in forming an opinion on the fairness of a client's financial statements. It is in this area that the auditor is presented with the question of inventory obsolescence. Obsolescence is defined in part in Kohler's Dictionary for Accountants as "the loss in usefulness of an asset, occasioned by the approach to the stage of economic uselessness through progress of the arts; economic inutility arising from external causes. Obso-lescence refers to disappearing usefulness resulting from invention, change of style, legislation, or other causes having no physical rela-tion to the object affected." Although cost is the primary basis for the accounting for inventories, it is generally recognized that we must depart from cost when we are confronted by obsolescence. Accounting Research Bulletin No. 43 states in Chapter 4, Statement 5, that "a departure from the cost basis of pricing the inventory 2
Auditor's responsibility for obsolescence
Oehring, Lyman W.
Inventories -- Accounting
Oehring, Lyman W.
Touche, Ross, Bailey & Smart. Detroit Office
Quarterly, Vol. 3, no. 1 (1957, February), p. 02-09
|Source||Originally published by: Touche, Ross, Bailey & Smart|
|Rights||Copyright and permission to republish held by: Deloitte|
|Format||PDF image with OCR under text, scanned at 400dpi|
|Collection||Deloitte Digital Collection|
|Digital Publisher||University of Mississippi. Digital Accounting Collection|